The expansion into the hotel booking markets in Asia and Eastern Europe present a tremendous growth opportunity for US based online travel services providers such as Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE). Post the acquisition of Booking.com and Agoda.com, Priceline has been steadily increasing its market share in the international market. Priceline’s international business contributed approximately 78% to its gross bookings (up from 55% in 2007) and 88% to its operating income in 2011. Recently, Priceline entered into a partnership with CTRIP (NASDAQ:CTRIP), a leading travel service provider in China, expanding its global reach even further.
Key European markets currently represent around 60% of Priceline’s total booked room nights, and with Agoda.com and Booking.com the company remains focused on increasing its presence in the Asia-Pacific region as well. We estimate that hotel bookings contributes more than 90% of Priceline’s valuation. This division not only contributes over 95% of the company’s revenue, but also is the most profitable division with over 20% margins. Thus, how Priceline fairs in this market, both domestically as well as internationally, will to a large extent determine the stock’s future value.
Booking.com currently includes over 235,000 hotels and accommodations on its websites. It has added hotels and accommodations over the past year in its core European markets as well as higher-growth markets such as North America (which is a newer market for Booking.com), Asia-Pacific and South America.
By forging a global travel partnership with CTRIP, Booking.com further enhanced its global hotel offerings earlier this month. Under the agreement, Ctrip.com will have access to Booking.com’s global portfolio of hotels in over 170 countries through Ctrip’s hotel reservation services. Currently Ctrip.com offers over 50,000 hotels worldwide. By expanding its international travel products, Ctrip.com, in collaboration with Booking.com, will be better positioned to service China’s fast growing outbound travel demand.
Despite posting a 27% y-o-y increase in gross bookings in its Q2 2013 results, Priceline’s stock has fallen 17% in value since the earnings release on August 7. (Read Our Article: Priceline’s Guidance Deflates The Surge In OTA Stocks) While some believe that the slowdown in the growth rate is due to the temporary softness in European markets, there are others who believe that the stock is on the path of correction after hitting a high of $765 in April this year.
With a price estimate of $568 for Priceline, we believe that the current market price assigns a fair valuation to the company’s stock.